Market Update - October 16th, 2023
Number of Fed Speakers Indicate the End to Rate Hiking!
It has been a common theme for almost ever Fed speaker to reiterate the need to potentially hike rates if the economy continues to run hot and inflation remains high. However, there was a noticeable shift in sentiment this past week from several Fed speakers. A couple quotes from last week are below:
Philadelphia Fed President Patrick Harker – “I believe that we are at the point where we can hold rates where they are. Look, we did a lot, and we did it very fast.”
Dallas Fed President Lorie Logan – “If long-term interest rates remain elevated…there may be less need to raise the fed-funds rate again.”
Fed Vice Chair Philip Jefferson – “In assessing future policy changes, I will keep in mind that financial conditions are tighter due to the higher bond yields.”
Atlanta Fed President Raphael Bostic – “Many impacts are yet to be felt. We don’t need to hike rates anymore.”
It is very unusual to witness so many Fed speakers focusing on a common theme, especially when that theme signifies a change from their previous messages. Until this week, we believed the Fed still had more work to do and planned for at least one additional rate hike this year. However, it’s clear from many of the Fed member speeches last week that we might have seen the end of their rate hiking spree (for now).
Key Takeaway: Numerous Fed speakers have stressed that they probably won’t raise interest rates anymore. Nevertheless, if inflation were to pick up again or the economy stays strong, it wouldn’t be surprising to hear the Fed speakers suggesting more rate hikes once more.
Nick and I are in agreement that we’ve likely reached the conclusion of rate hikes. However, our current expectation is that interest rates will persist at these elevated levels for an extended period.
How Does the Israel/Hamas Conflict Affect Mortgage Rates?
As you might recall from previous newsletters, we’ve discussed how mortgage rates tend to respond positively (rates drop) to periods of turmoil or uncertainty. Whether it’s due to war, a pandemic, or an economic downtown, when there’s troubling economic news, investors often seek safety by investing in Treasuries. This shift of money into the security of Treasuries typically leads to lower mortgage rates. So, when I woke up last Monday and heard about the possibility of a war, I expected a significant decrease in interest rates for the week. However, that didn’t happen as anticipated.
One of the main reasons behind the unexpected rate stability was the surprising increase in inflation when the Consumer Price Index (CPI) report was released. Remember, the Federal Reserve had been increasing rates over the past year and a half to try to bring inflation down to their target rate of 2%. If the data on inflation continues to show that it’s moving in the opposite direction, interest rates won’t decrease, regardless of the external events happening around us.
Key Takeaway: We expected rates to drop with the news of the Israel/Hamas conflict. However, rates remained flat as hotter than expected inflation data was released this week. If inflation remains hot, expect rates to remain high.
Instagram Posts from Last Week
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